PwC misled the ATO and the Foreign Investment Review Board, tax official says

A Senate inquiry has been told PwC’s former chief was warned staff may be coaching clients to mislead the tax office and FIRB, potentially exposing themself to jail time.

PwC’s former chief executive in Australia, Luke Sayers. Picture: Martin Ollman

Senior staff at PwC Australia ­potentially exposed themselves to five years jail after allegedly coaching or assisting clients to mislead the Australian Taxation Office and the Foreign Investment Review Board, a tax official has claimed.

In a response to questions on notice, ATO second commissioner Jeremy Hirschhorn has revealed he allegedly told PwC’s former chief executive Luke Sayers he was concerned partners at the firm were coaching clients on how to mislead regulators.

Senators are now demanding an inquiry into the claims, following the revelations.

Mr Hirschhorn said he told Mr Sayers in an August 2019 meeting he was concerned PwC’s tax practice was failing to comply with ­demands for documents, including making improper legal professional claims.

This came as the ATO was investigating PwC over the firm’s misuse of confidential government documents.

PwC Australia tax staff allegedly coached or assisted clients to mislead the ATO and FIRB. Picture: Gaye Gerard

Mr Hirschhorn alleges he told Mr Sayers PwC was engaging in potential tax-promoter penalty activity, including advising clients to subvert the multinational anti-avoidance laws, as well as minimise taxes through cross-currency interest-rate tax swaps, research and development schemes and goods and services tax schemes.

The ATO second commissioner said he told Mr Sayers he was concerned PwC partners were assisting the firm’s clients in preparing responses to requests for information, noting this included incidents where information provided was “false or misleading to the knowledge of the PwC staff involved”.

Mr Hirschhorn also claimed he warned Mr Sayers PwC had also been involved in providing misleading information to FIRB on behalf of clients “through omission and commission”.

This came as the ATO was closing in on several key clients advised by PwC, including overseas meat giant JBS, which purchased Australian deli goods business Primo in a $1.45bn deal in 2015.

JBS has sought FIRB approval on multiple occasions for its local expansion. However, the ATO has also pursued the business over its tax arrangements.

Australian Taxation Office second commissioner Jeremy Hirschhorn.

Mr Hirschhorn told the committee he also read out several PwC emails to Mr Sayers, noting “many of the above behaviours seemingly arose from the overlap of PwC’s multidisciplinary partnership and use of the ‘rover’ model, and that senior management had not adequately tested the operation of this business model”.

Labor and Greens senators said the allegations were extremely concerning, coming as a parliamentary committee prepares to hand down its review of the use of consulting services by government, which will also canvass the PwC tax scandal.

Greens senator Barbara Pocock noted Mr Hirschhorn’s comments that PwC had assisted in misleading regulators.

“This alone warrants action by the government to investigate breaches of the law which, if proven, would have very serious consequences,” she said.

“These revelations, shocking as they are, confirm our impression of PwC, led by Mr Sayers, as a dishonest player that has continually sought to mislead the Australian public about the true nature of how they go about their business. I will be calling for a full investigation of the allegations raised in the ATO.”

Labor Senator Deb O’Neill said the allegations PwC had assisted in misleading FIRB were serious and concerning.

The alleged conduct came as FIRB was starved of resources, with just two staff working in its foreign investment division compliance section in 2019.

These staff were expected to oversee hundreds of offshore investments into Australia each year.

“Under the Morrison Government and leadership of then treasurer Josh Frydenberg we know that in 2019 the FIRB was grossly understaffed, and did not have adequate resources to address serious concerns and potential malpractice by untrustworthy actors in the financial sector like PwC,” Ms O’Neill said.

However, despite the limited resources penalties for misleading FIRB were at the time still serious.

Prior to 2021 individuals who gave false or misleading information could face up to five years in jail.

This has since been ratcheted up, with penalties of up to 10 years in jail and fines of up to $782m.

Deb O’Neill took aim at Mr Sayers, warning the former PwC CEO “presided over a period of egregious professional malpractice and unethical conduct”.

“These newest revelations are deeply concerning, and show that the leaking of confidential government information was just one of potentially countless questionable acts that occurred under Mr Sayer’s watch,” she said.

“PwC has had a demonstrated apathy toward the structures and regulatory bodies which exist to safeguard Australia’s interests. This apathy is a direct affront to all Australians.”

The ATO was slated to appear at Senate estimates on Monday, but is now expected to face questioning later on Friday, at the earliest.

The latest salvo from the ATO comes in the wake of several evolutions of the information given by the tax office.

The ATO provided a limited response to the Senate inquiry in August last year, revealing Mr Hirschhorn met with Mr Sayers in February 2020, telling the then-boss of PwC about “range of concerns … with PwC Tax Group’s behaviour” urging him to “personally review” a tranche of emails that would reveal a brewing scandal with the firm’s former head of international tax Peter Collins.

Mr Hirschhorn then told parliament in September Mr Sayers and the firm should “do a proper review of all the emails rather than relying on us coming up with an extract”.

A spokesman for Mr Sayers referred The Australian to the businessman’s previous comments “about issues that were actually raised with him by the ATO when he was CEO, and the actions he took to address them”.

Mr Sayers issued a statement in March noting he was not aware of the issues in PwC tax practice, noting the ATO did not notify him about “evidence of a breach of confidence by the International Tax group” while he was CEO.

The ATO and PwC declined to comment.